* Fall in Tokyo shares provides pretext to buy the yen
* Yen pulls away from 5-year lows vs dollar and euro
* Nikkei and dollar/yen have tended to move in lockstep
By Masayuki Kitano
SINGAPORE, Jan 6 The yen edged higher on Monday
and pulled away from recent five-year lows versus the dollar and
the euro, with traders using weakness in Tokyo stocks as a
pretext to buy the Japanese currency.
Although Japanese equities often take cues from moves in the
yen, the correlation can work the other way as well.
Currency traders often look to moves in the Nikkei share
average for clues on the near-term direction of the Japanese
currency, because the yen's moves tend to be inversely
correlated to swings in the Nikkei, with the yen tending to rise
when Tokyo shares fall.
Traders and analysts said the Nikkei's 2 percent drop
on Monday helped spur yen-buying including some
short-covering in the Japanese currency.
"Long positions in the Nikkei are being taken off and it
looks like the currency market is getting sideswiped by that
move," said Satoshi Okagawa, senior global markets analyst for
Sumitomo Mitsui Banking Corporation in Singapore.
The dollar fell 0.5 percent to 104.38 yen, pulling
away from a five-year high of 105.45 yen set on Thursday, its
strongest level versus the Japanese currency since October 2008.
A trader for a European bank in Tokyo said he thought that
the dollar would stay on firm footing in January despite its
drop against the yen on Monday, adding that the greenback may
trade between 104 yen and 106 yen in the near term.
He added that the dollar could, however, see a bit of a dip
against the yen in February if Japanese equities falter in
anticipation of possible headwinds from Japan's sales tax
increase, which is set to take place in April.
The euro slid 0.5 percent to about 141.79 yen,
down from a five-year high of 145.67 yen set in late December.
The weakness in Tokyo shares was "enough to again flush out
longs in euro/yen, sterling/yen, and Aussie/yen," said a trader
for a Japanese bank in Singapore.
Sterling/yen fell 0.7 percent to 170.85 yen,
pulling away from a five-year high of 174.84 yen set on
Thursday, while the Australian dollar shed 0.4 percent to 93.36
Against the dollar, the euro held steady near $1.3585
, staying well below a two-year high of $1.3894 set on
trading platform EBS in late December.
The dollar index stood at 80.860, hovering near a
one-month high of 80.895 set on Friday.
The first full trading week of the year could offer
investors some more clues about the dollar's direction in the
The minutes of the U.S. Federal Reserve's December policy
meeting will be released on Wednesday. Central bank policy
makers decided at that meeting that they would begin to pare
stimulus, and cut asset purchases by $10 billion to $75 billion
a month. The minutes could hint at the timing and pace of any
further reductions to the Fed's stimulus.
Friday will bring the December U.S. payrolls report, which
could suggest whether domestic job growth is strong enough for
the Fed to continue tapering its asset buying.
In a speech on Friday, Fed Chairman Ben Bernanke, who steps
down as head of the U.S. central bank at month's end, gave an
upbeat assessment of the U.S. economy in coming quarters.
But he tempered the good news in housing, finance and fiscal
policies by repeating that the overall recovery "clearly remains
incomplete" in the United States.